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Clarity is a term which has become increasingly distant from proposed new legislation and budget changes. The alterations proposed in the Chancellor’s budget for the taxation of Trusts, which could affect the existing Wills and Lifetime Trusts of many people if they are passed in June, are no exception. Whilst the Government claims only a small minority will be affected, the reality could be much more significant.
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Traditional Trusts set up for children to receive funds after their 18th birthday from estates which exceed the Inheritance Tax (IHT) threshold of £285,000, will face charges of up to 20% at the outset and 6% of the value of the Trust every 10 years.Rising household wealth means that over 4 million estates are predicted to be above the IHT threshold by 2020, meaning that many people will need to review and change their Wills and Trusts to avoid a major tax liability.
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Furthermore, proposed changes to accumulation and maintenance Trusts, often used by grandparents to provide for their grandchildren’s school and university education would result in such Trusts having to be reviewed before April 2008 to prevent significant tax charges. Mary Butler, senior partner at Sheffield Law Firm, Bell & Buxton offers this advice: ‘This legislation may be passed as proposed or reviewed yet again and things should become clearer over the coming weeks. The important message is to be sure that you have an action plan for keeping your Will or Trust up to date.’ Apart from the impact on those with existing Wills, this should perhaps be a wake up call to those with none. Alarmingly, recent research suggests that 57% of adults in the UK have not made a Will, including 40% of people with homes worth more than £150,000.
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